Turnover: Liquidity or Uncertainty?
Management Science, 2014, v. 60 (10), pp. 2478–2495
47 Pages Posted: 15 Jan 2009 Last revised: 28 Nov 2015
Date Written: October 17, 2014
I show that turnover is unrelated to several alternative measures of liquidity and liquidity risk and that liquidity risk factors cannot explain why higher turnover predicts lower future returns. I find that the aggregate volatility risk factor explains why higher turnover predicts lower future returns. I also find that the negative relation between turnover and future returns is stronger for firms with high market-to-book or bad credit rating and these regularities are also explained by the aggregate volatility risk factor.
Keywords: liquidity, idiosyncratic volatility, uncertainty, turnover, aggregate volatility risk, real options
JEL Classification: G12, G13, G32, E44
Suggested Citation: Suggested Citation